I would have no problem drilling one set of new holes in the flange. If that bothers you at all, machining a new flange would be an easy job for any machine shop and would not be very expensive.
Based on the damage I see, it looks like the holes in the flange were quite a bit too big for the bolts used. When this is done, two things happen. The metal of the flange is "point loaded" by the bolt, and the two flanges rotate relative to each other slightly when the transmission is shifted. This results in an impact of the bolt against the flange, which pushes metal aside every time the transmission is shifted, resulting in exactly the kind of damage you see. The more the hole is enlarged, the further the bolt moves when shifting and the harder the impact. You can see where this story goes...
Larger holes than appropriate happen for one of four reasons. The manufacturer wasn't confident of ali
gnment, so gave some extra "wiggle room." Or, there was a mismatch of specifications between two different manufacturers. Or, the flange was sourced from third party stock parts without attention to such niggling details. Or, a bolt was used without paying attention to the proper size. I vote for option three!
You should have a what a machinist calls a "clearance fit" on the bolts and holes. This minimizes the relative rotation of the the flanges during shifting, and spreads the load of the bolt across as large an arc as possible.
If at all feasible, the guy doing the drilling should have the mating flange as well so he can be absolutely sure of alignment. These need to be very carefully aligned. In the absence of a documented specification (check the transmission manual...), I'd look for a relative runout of no more than 0.002"
Also, it is best (although no
t always easily arranged!) if the bolts used are unthreaded where they go through the flange to spread the load across as wide an area of metal as possible.
Annapolis, MD, USA